@sarah andrews; follow up to your post and @steve c comments.

Response to question, “How are Self Storage locations valued?”. I will go with a multiple response answer.

Simple answer: If you look out on Loopnet, most Self Storage listings will show Cap rate.

Layered answer: I'm just talking about Mom/Pop and not REIT valuations. Most of them list for what they "think" it is worth, with no financial development of their listing price. Basically blood/sweat/tears valuation. Most of them have only owned and will only sell one location.

Integrity of Cap rate or data: I would look at the source or realtor behind the listing first. If a National self storage realtor, then they will most likely have challenged the data behind the Cap Rate. If a local Realtor they may not have cleansed the data. I looked at one location that is getting a lot of attention, and Property taxes and Management fees were not included in the Cap Rate calculation. They weren't trying to hide anything, they were just going with the info supplied from the owner.

Valuation method, who cares: There is a lot of REI cash sloshing around for self storage, thus a financial approach to valuing an asset is probably not the best approach for a listing price. You as an investor, however have to make sure the numbers work for your goals. I've evaluated several properties "List”/ “price I would offer” = $1,000,000/$600,000; $1,250,000/$1,000,000; $2,500,000/$1,800,000; $1,350,000/$800,000. They will probably get their price, just not from me. Currently “Developing” is a better investment than buying. But Developing is not in everyone's tool chest or timeline.

Our financial targets are 8 to 12 year payback/off, including interest/principal; with a 20/25 year term loan.

When evaluating a property from a Financial standpoint your major items are:

a. Revenue and is it sustainable.- audit the rent roll. Past dues, and length of rentals, last price increase. How many are the owners.

b. Property Tax- google local tax rate and also look at GIS map with tax info.

c. Insurance- use rough $2,000 per $500,000 valuation

d. Management- depends self service or onsite.

e. Electric/upkeep/grass/snow- estimate

Throw all of the above info out, except both of our financial targets.

Evaluating a property, the following are the steps we go through:

1. Financial targets met?

2. Develop financial data our self, other than Revenue figures. Your biggest numbers are noted above in “a” thru “e” above.

3. Value assessment. Lets compare two locations with the exact same net income and buildings. Both listed at $1,500,000 with cap rates of 6%; they both hit your financial targets. Both are in two different locations(A/B). I pick “B”. Why?

- B, has two extra acres tied to it. We can add 130 more units. Which has a payoff of 3.5 years once full and an occupancy of 35% needed to break even (including interest/principal).

- B, last raised their rents four years ago. $10 per unit increase on a $80 unit, increases your cash flow around 30%, and may reduce your total project payoff by 2 years, approximations.

- B, is not automated. Move to autopay, reduce your work load/management costs.

- B, has truck and packaging sales. Get rid of it and reduce management costs.

- B, has a two way intersection, with pull out lanes. C, does not have a cross over intersection.

- C, is in a market with 10 units/100 people; B, is in a market with 4 units/100 people.

- B, is in a hilly area, with almost no zoning for Self storage and in the middle of neighborhoods. C is in a flat industrial area, where anyone can build storage and away from the neighborhoods. Evaluate zoning maps, zoning codes, future zoning plans.

4. Risk Assessment. The last two items above are your risk assessment.

Don't tell the seller. I am willing to pay an extra $200,000 for "B". When you look at locations listed, they won't tell you the items noted in 3 above. Don't get hung up on the COC, NOI, Cap rate, etc. Verify they hit your "numbers". Challenge the data, then evaluate the properties on their merits.

Start small and Make Your Big Mistakes Early.